Healthcare is the hottest new sector for start-ups when it comes to new technology like virtual reality (VR), augmented reality (AR), and artificial intelligence (AI). From genetic research and emergency room management to clinical trials, virtual nurses and drug discovery, these new technologies are already creating new applications in healthcare.

According to Deloitte's 2017 Global Healthcare Sector Outlook, the next top ten technology innovations are expected to bring more value for less in healthcare. These include generation sequencing, 3D-printed devices, immunotherapy, AI, point-of-care diagnostics, VR, social media, biosensors and trackers, convenient care, and telehealth.

Applications of these technologies are already in practice today. In 2016, Shafi Ahmed, a cancer surgeon, operated using a VR camera at the Royal London hospital. A team at Cedars-Sinai hospital in Los Angeles brought VR worlds to patients with chronic pain and allowed the patients to leave the hospital walls and experience a different reality, swim with dolphins, take a walk in the countryside. The teams say the hospital experience can be improved with medical VR, and also lower the cost of care.

Heavyweights like Google, through Google DeepMind Health, are using AI to mine medical records and processing hundreds of thousands of medical data in minutes at Moorfields Eye Hospital and University College London Hospitals (UCLH) Trust. And start-up CareSkore uses AI and a proprietary algorithm based on a combination of clinical, labs, demographic and behavioural data, to determine how likely it is that a patient will be readmitted to a hospital.

These technologies are expected to redesign how healthcare is done and how consumers access and use it. The funding and market value proves that out. According to a 2017 research report from Arcluster, the worldwide healthcare market in AI is expected to surpass $5.5 billion by 2022, just four years from now. However, global prosperity in biotech is not equal.

In 2017, according to PwC/CB Insights’ Healthcare MoneyTree Report, in Q3 2017 there were 184 healthcare deals worth $3.3 billion in the US. Early and expansion stages led to the highest market share of deals in Q3 2017, while seed stage deals increased to 18%, which reversed the trend of the previous three quarters. And according to Pitchbook, funding in biotech topped $9.3 billion across 474 deals in 2017.

But in Europe, the numbers looked different, with the total number of healthcare deals coming in at 50 and worth approximately $1.5 billion during Q3 2017, which experts say represented an eight-quarter low.

It was, however, the third consecutive quarter of decline in deals in Europe. This was countered by an increase in funding due to Softbank's $1.1 billion investment in Roivant Sciences. The report notes that without the investment into Roivant Sciences, Europe would have seen a third consecutive quarter of decline in funding.

At the same time, in December 2017, the UK government announced the Life Sciences Sector Deal, which includes investment from government and industry.

The idea of creating the perfect blend of start-ups, public and private partnerships, government, and the venture community, which can come together to build out the ecosystem and move the healthcare industry from analogue to digital through new technology, is a priority. But the industry will also face both legal and ethical challenges as it develops.

In February 2017, the European Commission was told to lead the way on developing EU-wide liability rules and ethical standards to deal with artificial intelligence and robotics. The Commission issued a response which emphasised the need for legal certainty and the legal challenges it will face when identifying where liability should fall amongst the different market players.

As the healthcare industry continues to grow with mergers and acquisitions and create entirely new applications for consumers, doctors, and medical personnel, it will need a reliable baseline of liability rules, data protection, and ethical standards to ensure sustainable long-term growth.

Written by James Shaw, Co-Founder and Partner, Life Sciences and Corporate at JAG Shaw Baker.

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James Shaw will participate in a panel discussion about funding AI, AR and VR start-ups in healthcare for growth at Biotech and Money/Medtech and Money World Congress on 5 February 2018. Panellists include Isabel van de Keere, CEO at Immersive Rehab, Tommi Lehtonen, CEO at Blueprint Genetics, and Andrew Chapman, Digital Health, Sector Lead at Digital Catapult. The panel will be moderated by Jennifer Kite-Powell, Tech contributor, Forbes.

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Founded in 2013, JAG Shaw Baker is a strategic law firm that advises entrepreneurs, companies and investors in high-growth markets including the life science, clean tech and digital technology sectors.